Welcome to the Antitrust Antidote—a quarterly publication analyzing U.S. antitrust decisions from legal and economic perspectives. Authored by former Federal Trade Commission (FTC) enforcer Koren W. Wong-Ervin with former FTC economist co-authors Jeremy Sandford and Nathan Wilson, alternating each quarter. The title of this series, “Antitrust Antidote,” while mostly meant to be humorous (perhaps limited to those of who have heard Koren’s “let’s talk economics” as a cure for a bad day), also refers to the practical guidance we aim to provide throughout the series. We hope you enjoy it!
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In re: NFL “Sunday Ticket” Antitrust Litig. (C.D.Cal August 2024)
Classes of commercial and residential subscribers to NFL Sunday Ticket sued the NFL and its teams, asserting antitrust harm relating to the NFL’s bundling of out-of-market games, i.e., those not involving a team local to a given television market. A jury found for Plaintiffs and awarded damages of $4.6 billion to the residential class and $96.9 million to the commercial class. The district court granted Defendants’ motion for judgment as a matter of law and ordered a new trial on the basis of a post-trial Daubert analysis, finding that expert damages testimony was unreliable. The court also found that the jury’s damages award was irrational, based on guesswork or speculation, and not in line with the court’s instructions to the jury. We explain the court’s reasoning in overturning the jury’s findings regarding damages.
The plaintiff’s expert opined that, in the absence of the challenged bundling conduct, out-of-market NFL games would have been available via various basic cable and over-the-air TV channels already available to consumers at no additional cost beyond what consumers were already paying for those channels, and thus that damages were equal to the entire $7 billion in subscription fees paid by the class members during the class period. The court found significant practical and economic problems with this finding:
- The expert based his but-for world on a comparison to college football games, which the expert said are routinely available on over-the-air or basic cable channels, even out-of-market. The court rejected this analogy, partly because many college football games are only available via premium offerings (e.g., the SEC Network) and because, unlike the NFL, college football does not guarantee access to local teams.
- The court stated that the expert did not offer a plausible explanation as to how out-of-market games would be available via existing channels—for instance, who would produce out-of-market broadcasts, given that producers of in-market games testified that they would not share their feeds—and that the expert relied on conclusory statements that the NFL and its teams would “certainly figure it out.”
- The expert proposed various scenarios under which NFL teams would share revenue with one another, stating that the teams would “figure it out.” The court criticized these scenarios as not based on an economic methodology and thus not being reliable.
In addition to granting the Defendants’ motion for judgment as a matter of law, the court found that the jury’s damages award was irrational and did not follow the court’s instructions. The jury awarded $4,610,331,671.74 in damages (cf. plaintiff’s expert calculated there to be $7 billion in damages and $3.5 billion under an alternate, more conservative set of assumptions). Defendants reverse-engineered the jury’s oddly specific damages number and found the jury’s damages award likely resulted from an arithmetic error.
- The jury was instructed to calculate damages by determining the difference between A) the price actually paid for Sunday Ticket by class members and B) the price they would have paid in the but-for world.
- The court found that the jury most likely calculated the former “actual” price to be $294, the list price of Sunday Ticket (despite evidence that most customers paid less than the list price).
- The jury most likely calculated the latter “but for” price to be $102.74, which plaintiffs calculated as the actual average price paid by Sunday Ticket subscribers.
- The jury most likely calculated damages as ($294 – $102.74) * (number of class members), which yields the jury’s damages number to the penny.
- In other words, the jury calculated per-customer damages to be the discount off of the list price, which is not a plausible damages number and does not match the court’s instructions. For example, if a good has a list price of $100, is actually sold at an average purchase price of $80, but would sell at $79 absent some conduct, the appropriate damages from the conduct are $1 per unit sold ($80-$79), but the jury’s logic would have calculated damages to be $20 per unit sold ($100-$80).
In our view, the court’s order highlights the centrality of reliable and economically meaningful damages methodology to antitrust claims made by private plaintiffs. Without a damages number tied to economic and practical realities, even a successful liability claim will ultimately fail.
FTC v. Community Health Systems/Novant Health (4th Cir. June 2024)
The FTC challenged Novant’s proposed acquisition of the Lake Norman Regional Medical Center (“LNR”, a hospital providing general acute care services) and the Davis Regional Psychiatric Hospital (“Davis”)—both located in the Lake Norman region north of Charlotte, North Carolina—from Community Health. Novant and rival Atrium operate 16 of the 19 hospitals in the Charlotte region, and all parties appear to have agreed that the merger would trigger the structural presumption for harm under both the 2010 and 2023 Guidelines. The district court denied the FTC’s motion for a preliminary injunction on the grounds that LNR and Davis were failing and likely to close or to be marginalized absent an acquisition and because Novant would continue to face “vigorous” competition for patients from both Atrium and a smaller rival (Iredell Health). The Fourth Circuit granted the FTC’s motion for an injunction pending appeal, at which point the parties decided to abandon the merger.
Defendants argued that LNR was a low-quality hospital that was struggling to attract patients and which would be further threatened by the July 2025 opening of Atrium’s Lake Norman (“ALN”) hospital, which documents indicated was likely to cut LNR’s revenue by 20-30%. They stated that the transaction would allow Novant to add services to LNR, improve its quality, and keep Davis open. Defendants also committed not to increase prices for three years, i.e., until well after the expected opening of ALN. Defendants argued that the synergies that could result from the transaction were merger-specific because there were no alternative buyers for the Community Health facilities, and because Community Health was saddled with massive debt and could no longer efficiently invest in or operate the facilities itself.
The FTC, unsurprisingly, saw things differently, stating in its complaint that the acquisition would increase concentration and thereby increase the rates Novant hospitals were able to extract from insurers. The FTC’s claims were the same as those made in their previous successful challenges to other hospital mergers. The main difficulty the FTC faced in applying its framework for evaluating hospital mergers to this matter seems to be the possibility that one or both of the acquired hospitals would cease to exist but for the merger. The FTC argued that claims of LNR’s obsolescence were exaggerated and, if anything, the result of voluntary choices by Community Health that any alternate owner could undo.
The district court agreed with the defendants, stating that (1) having Novant hospitals “on either side” of ALN would provide a more competitive balance than separately-owned hospitals; (2) Davis would likely close absent the transaction; (3) LNR would gradually become nonviable, eventually forcing its closure; and (4) Novant was likely to increase investments in LNR above Community Health’s current low level (e.g., LNR has a “fragmented and antiquated electronic medical record system”). In particular, the district court found that competition in the Charlotte region was “a two-horse race, with one horse [Atrium] clearly in the lead.” In other words, the district court found the competition between Novant and Atrium to be more impactful than that between an independent LNR and the Atrium and Novant hospitals. The court also assigned great importance to the fact that there were no other bidders for LNR and Davis, which the court interpreted to mean that the hospitals’ dire straits were likely to continue absent the merger. At the same time, the court discounted much of Novant’s claims that LNR was a “bad” hospital with low quality, finding that it scored well on multiple quality metrics.
The Fourth Circuit did not explain its reasoning in a written opinion. However, one member of the panel issued a written dissent stating that the benefits Novant could bring to LNR, including investing in LNR, would be jeopardized by subjecting the merger to a multi-year review in the FTC’s administrative court.
District of Columbia v. Amazon (D.C. Circuit Aug. 2024)
The D.C. Circuit reversed the lower court’s dismissal of the District of Columbia’s antitrust suit against Amazon, holding that the District adequately pleaded that Amazon’s alleged conduct had anticompetitive effects under the District’s antitrust laws. The District alleged that Amazon engaged in unlawful most favored nation (MFN) agreements that required third-party sellers to agree to contract terms that prohibited them from offering their products through other online marketplaces at a lower price than that offered on Amazon. According to the District, this “artificially raised the price of goods to consumers across online marketplaces” because third-party sellers “were forced to incorporate Amazon’s high fees and commissions into their product prices not only when selling through Amazon’s marketplace, but also when selling through competing online marketplaces.” The District also challenged Amazon’s alleged use of minimum margin agreements (MMAs) that require first-party sellers to guarantee Amazon an agreed-upon minimum profit for the products Amazon purchases wholesale and sells retail on Amazon’s online marketplace. According to the District, these MMAs incentivize first-party sellers to increase their prices on other online marketplaces to avoid owing any loss of profit margin to Amazon—what the District calls “true up” payments.
The D.C. Circuit’s key conclusions include (1) “it is well established that an entity can exert monopoly power over the market price”, even with as low as 49% market share and, regardless, the complaint must be taken as a whole in consideration of the fact the District alleged both direct and indirect evidence of monopoly power; and (2) defining the relevant market as “online retail marketplaces” (excluding brick-and-mortar retail stores) is not “facially implausible”.
Notably, while the D.C. Circuit’s decision was decided under D.C. antitrust laws, the court relied upon Sherman Act Section 2 precedent to conclude that monopoly power can be found even with a low market share of 49%. Importantly, courts under Section 2 generally require both significant barriers to entry and shares “significantly larger than 55%”,[1] with the “classic formulation being that 90% is certainly enough, 33% is certainly not, and 60–64% is close to the line”.[2] The Fifth Circuit has observed that “monopolization is rarely found when the defendant’s share of the relevant market is below 70%”.[3] Even older decisions such as the Supreme Court’s 1946 decision in American Tobacco endorsed Judge Hand’s approach in Alcoa that for a finding of monopoly power “it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three per cent is not.”[4]
Bakay v. Apple (N.D.Cal July 2024)
A California district court granted Apple’s motion to dismiss, holding that the direct purchaser Plaintiffs lacked antitrust standing to challenge Apple’s requirement that browsers on iOS and iOS apps relying on a browser engine use Apple’s Webkit browser engine (i.e., restrictions that prevent browsers from using alternative browsing engines, as they can on other operating systems). The plaintiffs alleged that the result was supracompetitive smartphone profits.
The court concluded that the Plaintiffs lacked standing, including because their alleged injuries “are too removed from the alleged misconduct”, requiring the existence of multiple links in the causal chain, namely “the proliferation of a critical mass of PWAs [Progressive Web Apps] that would permit third parties in the SOS [smartphone operating system] and smartphone markets to emerge and compete with Apple, causing Apple to lower the price of the iPhone.” The court noted that “Apple identifies PWA or browser developers as well as third-party SOS developers as potential classes of victims that are far less removed from the alleged misconduct than Plaintiffs”, ultimately concluding that “Plaintiffs’ injuries and Apple’s alleged misconduct necessarily means that there are other more direct and immediate victims that weigh against finding antitrust standing.”
Jeremy Sandford & Koren W. Wong-Ervin
The authors thank John Huston for his assistance in the research. The views and opinions set forth herein are the personal views or opinions of the authors; they do not necessarily reflect the views or opinions of the organizations with which they are affiliated or those organizations’ management, affiliates, employees, or clients.
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| Citation: Jeremy Sandford and Koren W. Wong-Ervin, Antitrust Antidote: Antitrust Antidote: June-September 2024, Network Law Review, Autumn 2024. |
[1] United States v. Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d Cir. 2005).
[2] Daniel Francis and Christopher Jon Springman, Antitrust – Principles, Cases, and Materials 332 (American Bar Association – Antitrust Division) (2023).
[3] Exxon Corp. v. Berwick Bay Real Estates Partners, 748 F.2d 937, 940 (5th Cir. 1984) (per curiam).
[4] United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945).
